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10/04/2022

WSJ: Retail real estate is having a big year

Al Urbanski
Real Estate Editor & Manager
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Shoppers left their laptops and went to centers--as did lots of the brands they used to find only online.

The United States’ retail vacancy rate in the second quarter fell to its lowest level in at least 15 years—6.1%.

Rents during the quarter were 16% higher than they were five years ago.

More stores opened than closed last year for the first time since 1995.

Those are the headline facts about the retail real estate industry in a report in the Wall Street Journal this week, and analysts expect the trend to continue, even as the first winds of recession are beginning to blow.

The reasons?

  • More originally direct-to-consumer companies are following Warby Parker’s model to attract more customers and increase volumes with locations in physical retail locations.
  • Forced to go online for groceries, home goods, and apparel during the pandemic, American consumers found they missed being able to squeeze grapefruits in supermarkets and try on dresses in shops and returned to malls and shopping centers in a big way.
  • Supply chain disruptions and a paucity of skilled construction workers found most developers renovating existing properties instead of building new ones. The new supply of retail gross leasable area fell by 59% in 2021’s fourth quarter according to the global retail services company CBRE.

WSJ noted that strong sales in brick-and-mortar retail despite high inflation and rising interest rates indicated that “the industry is more capable than it has been in years of weathering coming storms.”

The paper noted that online retail sales hit a peak of 16.4% in the second quarter of 2020, then settled back to 14.3% in the first quarter of 2022, “a moderate rate of growth that makes clear people still want to shop in person,” said the report.